Michigan governor wraps up deposition in Detroit bankruptcy case

10/9/2013

BY PAUL EGANDETROIT FREE PRESS (McT)

LANSING, Mich. — Michigan Gov. Rick Snyder’s historic deposition in the Detroit bankruptcy case wrapped up shortly after noon today, following more than three hours of questioning by attorneys for unionized city employees and retirees.

Sharon Levine, a New York attorney representing the employee union AFSCME, said Snyder appeared to try to be very forthcoming in response to some questions, but “at other times he couldn’t recall, didn’t recall, or was claiming attorney-client privilege.”

Still, “we appreciate the fact that he appeared for a deposition,” Levine told reporters outside the Romney Building in Lansing. “It’s highly unusual.”

Snyder was deposed in the bankruptcy case in what experts say is likely a first.

“I agreed to participate in today’s proceedings and answer questions regarding the decisions that led to the municipal Chapter 9 filing for the city of Detroit,” Snyder said in a statement issued after the deposition.

“Doing so helps ensure this case is resolved fairly and as quickly as possible and that we’re acting in the best interests of Detroiters and Michiganders.”

He said authorizing the bankruptcy was “a difficult but necessary decision” and “one that clearly was the last and only viable option to resolve the city’s fiscal crisis and restore the greatness of this proud city.”

Bankruptcy experts say they know of no other case in which a state governor has testified in a Chapter 9 bankruptcy and it’s not even the norm for city mayors to be deposed.

But the state’s role in the lead-up to the bankruptcy set up under Michigan law — including the state’s appointment of Detroit Emergency Manager Kevyn Orr and the governor’s required sign-off on the bankruptcy filing — is unique.

Attorneys for city employee unions and retirees wanted to question Snyder to advance their argument that Detroit was ineligible to file for bankruptcy because the city made no good faith effort ahead of the filing to negotiate with creditors.

“The governor testified there were proper negotiations,” Levine said after the session. However, “we’re still very concerned that they did not negotiate in good faith.”

The unions and retirees have argued in court filings that the hiring of Orr and the bankruptcy filing were planned out well in advance by Snyder and others as the only way to make massive cuts to city retirement obligations as part of a financial restructuring.

Michigan’s constitution prohibits actions that reduce the accrued pension benefits of city employees, but Orr has said that federal bankruptcy law can trump the state constitution.

Snyder was accompanied at the deposition with his chief counsel Michael Gadola and lawyers from the Attorney General’s Office, was “very calmly looking forward to answering questions and explaining the process,” spokeswoman Sara Wurfel said Tuesday.

Michael Sweet, a bankruptcy attorney in San Francisco, said union and retiree attorneys will argue “this was all pre-planned,” and “there really wasn’t good faith negotiations” with creditors, which is required by law before a Chapter 9 bankruptcy filing.

Attorney Douglas Bernstein, a bankruptcy expert with Plunkett Cooney in Bloomfield Hills, Mich., said such arguments fall into “a gray area,” because there is no clear definition of what constitutes good faith bargaining.

Another issue is whether Snyder could lawfully give the green light for a Detroit bankruptcy without first requiring that city retiree pensions be protected.

Attorneys focused their question on those areas — and what discussions were held with Snyder and the officials who surround him — in an earlier deposition with Orr.

“Since becoming emergency manager on the 25th (of March) I’ve had regular conversations with the governor,” Orr testified on Sept. 16. “Typically weekly... I will say that (bankruptcy) wasn’t within our initial conversations.”

The city filed for bankruptcy July 18 after making a June 14 proposal to creditors.

A fallback position for the unions and retirees is to question whether Detroit was truly insolvent if assets such as artworks held by the Detroit Institute of Arts, the Detroit Water and Sewer Department, and real estate were converted into cash.

Given the city’s massive and well-documented fiscal crisis, “that could be a tough argument,” Bernstein said.

Treasurer Andy Dillon and Richard Baird, a Snyder aide who helped recruit Orr, are to be deposed Thursday.

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